The year is nearing the halfway mark and some of the best-selling ETFs so far in 2013 focus on limiting volatility and interest rate risk. Japanese equities, minus exposure to the yen, have also been a popular trade in ETFs.
“Another notable trend was the increased interest in ETPs offering exposure to Japanese equities. At $10.2 billion, this was the largest monthly inflow on record for the category. Year-to-date flows in Japan equity ETPs have reached $23.1 billion, or 22.9% of all global equity ETP flows. To put this in perspective, the pace of flows so far in 2013 is already more than double the levels seen annually in both 2011 and 2012,” Dodd Kittsley wrote for BlackRock ETP Research.
Investors have focused in on limiting downside risk as they have dipped back into equity markets. A hot spot has been Japanese equities, minus exposure to the Japanese yen, through the WisdomTree Japan Hedged Equity ETF (DXJ) .
Eric Balchunas for Bloomberg reports that the fund has attracted $7.5 billion so far in 2013. Since Prime Minister Shinzo Abe has taken office late in 2012, DXJ has returned 56.9%, as investors have targeted Japanese equity exposure while avoiding the weakening yen. [Japan ETFs Back in Focus After Abe Speech]
The constant search for decent yield has led investors to bank loan funds this year. The PowerShares Senior Loan Portfolio (BKLN) has been high on the list of popular ETFs in 2013, with $2.8 billion in fresh inflows. The goal of the ETF is to give investors exposure to high yield while removing interest rate risk, with high yield bonds that have floating rates. BKLN has returned 9.2% over the past year and it yields 4.6%. [Bank Loan, Floating Rate ETFs for Rising Interest Rates]
The iShares MSCI USA Minimum Volatility Index Fund (USMV) has attracted $2.7 billion in new inflows. USMV is a large-cap ETF play that aims at dissolving volatility. Balchunas points out that USMV has returned 16.7% year-to-date while the MSCI USA Index is up 16.5% for the same time period. [Low Volatility ETFs Remain Popular with Risk-Averse Investors]
USMV can be compared to the PowerShares S&P 500 Low Volatility Portfolio (SPLV) that focuses on the 100 least volatile stocks in the S&P 500. USMV reduces sector exposure by limiting the amount allocated to any specific area of the market to 18% weight.
WisdomTree Japan Hedged Equity ETF
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.